Donkeyphant in the room: Is either party serious about debt and how worried should we be about it?

"Is it conceivable that they are quietly encouraging the Debt Scare...in order to reduce support for what Obama wants to accomplish?" Robert Reich

June 10, 2009

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Send to a friendDonkeyphant in the room: Is either party serious about debt and how worried should we be about it? "Is it conceivable that they are quietly encouraging the Debt Scare...in order to reduce support for what Obama wants to accomplish?" Robert ReichJune 10, 2009

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Neither party is serious about the national debt but there are important differences in their lack of seriousness.

Let's start with the Republicans. Their recent born-again commitment to fiscal responsibility doesn't meet the laugh test. They would have us believe that the projected increases in annual deficits and the national debt are a consequence of a reckless growth of government driven by policies of President Obama and Democrats in Congress. David Leonhardt's article in today's New York Times devastatingly removes every shred of credibility from that argument.

Moreover, the policies they propose -- repeal of the stimulus, a freeze on spending (non-defense discretionary), and a permanent, across- the board tax cut -- would enlarge, not reduce, deficits and debt. Such policies would likely prolong and deepen the recession, further reduce government revenues, increase the gap between revenues and outlays, and drive up the cost of servicing the debt. In addition, their seeming resistance to health care cost controls (illustrated painfully by the rationale behind opposition to comparative effectiveness research) makes it unlikely they would be able to slow the growth of Medicare and Medicaid costs.

The story for Democrats is a bit more complicated. They rightly resent the fact that they inherited a fiscal mess from the Republicans, which was driven partly by the unwillingness of President Bush and his Republican colleagues in Congress to pay for the costs of tax cuts, the wars in Iraq and Afghanistan, homeland security, and Medicare drug coverage, and partly by the necessity of continuing the financial stabalization effort initiated responsibly under Bush's watch and of using government spending to increase aggregate demand in the face of a serious recession and potential deflation. Moreover, they accept the powerful argument of Obama and his OMB director Peter Orszag that fiscal balance over the long term requires reducing the rate of growth in public and private health care outlays.

The policy flaw of Obama and the Democrats is their support for (indeed, insistence on) extending almost all of the Bush tax cuts and even adding additional middle-class tax cuts and refundable tax credits to low-income households. When combined with the blow to public finance from the economic downturn, this virtually ensures big deficits and a startling growth in the national debt for the foreseeable future. And then there is the unwillingness of many self-identified fiscal hawks in Congress (many of whom are Blue-Dog Democrats) to pull the trigger on spending and tax policies (e.g. cuts in payments to high-spending community hospitals and large agriculture enterprises, taxing large estates) consistent with their rhetoric.

We should worry about the national debt -- not to eliminate its growth over the next several years, which is inevitable here and in virtually every other country around the globe, but to take steps now that will pay fiscal dividends as the global economy recovers. That is an argument for doing serious health reform, one that has real cost-control measures and is paid for over the next ten years, and returning to Clinton-era tax rates after the Bush rates expires.

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